Major Gasoline Brand Value Remains Powerful

Myth of its imminent demise has been greatly exaggerated, says Lundberg

CAMARILLO, Calif. -- Instead of losing their street price premiums over nonmajor brands, major gasoline brands have been growing them. Instead of brand value going away, it remains powerful, according to the latest Lundberg Letter.

Major-brand gasoline now fetches a bigger street price premium over nonmajor product than it used to, said Lundberg, affirming that brand value as defined by the ability to command a higher price is flourishing. Between 2002 and 2012, majors' spread over the competition increased by 1.5 cents per gallon to $5.2 cents. The retail spread results from each major and nonmajor company's category, individual retailers' tactics and the ongoing entrances and exits of competitors within markets.

The myth that gasoline brand value would become weak or even go away had been propagated decades ago even before gasoline futures markets had matured, when spot markets and unbranded racks were growing channels of trade. As futures training grew, the myth way brayed louder. As huge, high-volume chain retailers with their own street brand clout gained ground and hypermarketers charged on to the scene, the old myth kept getting plenty of ink.

However, regardless of NYMEX, the spots, the QuikTrips and Walmarts participating in the gasoline market, the old major brands' premium remains robust, Lundberg said.

For the majority of those benefiting from the still-healthy premium--that is, major-branded retailers and their suppliers--the myth of its imminent demise is inconsequential. An Exxon retailer isn't likely pining to be Brand X. Northeastern Mobil dealers were not thrilled when they were switched to the Lukoil brand. There are some, of course, who get fed up being with their majors and opt out for less costly and cumbersome agreements. And among those, some regretted branding down, according to Lundberg.

The ability to command a higher price is only one definition of brand value, said Lundberg; the other main one is the ability to post a low price for the sake of gallonage.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.